World to embark on “critical period of intensified risk”

World to embark on “critical period of intensified risk”

Sun-Tzu’s famous quote may have been that “in the midst of chaos there is opportunity,” but when applied to the insurance industry it appears that where there is risk there are new prospects – and that means that 2018 could be a vital one for the sector.

The World Economic Forum has today published its Global Risks Report 2018 and revealed that amid the strong prospect of economic growth there are chances to address severe weaknesses in several key areas – ranging from the environment to international relations. The survey asked nearly 1,000 respondents for their trajectory of risks for the year and 59% of answers pointed to risks intensifying, compared to just 7% suggesting they are declining.

“A widening economic recovery presents us with an opportunity that we cannot afford to squander, to tackle the fractures that we have allowed to weaken the world’s institutions, societies and environment,” said Professor Klaus Schwab, founder and executive chairman, World Economic Forum. “We must take seriously the risk of a global systems breakdown. Together we have the resources and the new scientific and technological knowledge to prevent this. Above all, the challenge is to find the will and momentum to work together for a shared future.”

So where is the focus of these mounting risks?

Just like in 2017, the environment was highlighted as the greatest concern raised by experts – all five environmental risks among the overall 30 the experts were asked to rank, featured highly. These include extreme weather; biodiversity loss and ecosystem collapse; major natural disasters; man-made environmental disasters; and failure of climate-change mitigation and adaptation.

“Extreme weather events were ranked again as a top global risk by likelihood and impact,” commented Alison Martin, group chief risk officer at Zurich Insurance Group. “Environmental risks, together with a growing vulnerability to other risks, are now seriously threatening the foundation of most of our commons. Unfortunately, we currently observe a “too-little-too-late” response by governments and organisations to key trends such as climate change. It’s not yet too late to shape a more resilient tomorrow, but we need to act with a stronger sense of urgency in order to avoid potential system collapse.”

Of particular note for the insurance industry was the emergence of cyber once more into the spotlight. Cyber threats were deemed to be growing in prominence in the report, with large-scale cyberattacks now ranked third in terms of likelihood, while rising cyber dependency ranked second among significant drivers shaping the landscape of global risks for the next decade.

“Geopolitical friction is contributing to a surge in the scale and sophistication of cyberattacks,” said John Drzik, president of global risk and digital at Marsh. “At the same time cyber exposure is growing as firms are becoming more dependent on technology. While cyber risk management is improving, business and government need to invest far more in resilience efforts if we are to prevent the same bulging ‘protection’ gap between economic and insured losses that we see for natural catastrophes.”

Meanwhile, economic risks slipped in their prominence this year – with some experts concerned that improvements in GDP growth rates may even lead to complacency about financial systems.

In addition, this year’s Global Risks Report presented 10 short “what-if” scenarios. These are not predictions but are meant to be food for thought for world leaders in regards to potential future shocks that could rapidly cause disruption. According to the report these are: